by Johannes Fiala, Lawyer (Munich), M.B.A. (Univ.Wales), M.M. (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker (www.fiala.de )
The experienced insurance broker will point out two common gaps in the VSH conditions to his VSH client: On the one hand, the lack of coverage if the insured, in particular, “knowingly violates an order, instruction, resolution, power of attorney, or in any other way”. This can be mitigated by individual agreements or special coverage concepts for the insured. Occasionally, the insurer will deny coverage by relying on the claimant’s arguments ? not always successfully. On the other hand, the insurer may invoke the dangerous serial loss clause.
Broker liability under the serial damage clause
A serial damage occurs if the damage is “based on the same or similar source of error, through action or omission”. Then it is only one case of damage, so that the sum insured is only available once for all damages. Some insurance brokers falsely sell this to their clients with the words “if you as a tax advisor incorrectly balance the occupational pension scheme in the annual accounts of various clients, then this is considered to be a claim ? so we take out a higher sum insured right away”.
The insurance premium is then unnecessarily high ? a classic error of advice on the part of the insurance broker.
The pitfall of the serial damage clause
The claims departments of VSH insurers also like to invoke the serial loss clause. One case involved the brokerage of real estate funds. The intermediary had not sufficiently tested the concept ? numerous investors later demanded compensation for damages. The intermediary was granted cover to the extent of the sum insured once ? the rest of the damage was to be borne by the agent himself, and would thus have been over-indebted. Therefore, the agent sued his VSH insurer and won before the BGH (judgement, file number IV ZR 19/03 as well as VersR 1991, 873).
Arguments of the BGH
The intermediary owes each prospective investor personalised advice. Even if this had affected the same investment object (real estate fund) again and again, in the opinion of the BGH each wrong consultation justifies an own offence, and just no serial damage. The BGH narrows down the concept of serial damage and requires a close legal and economic connection for this. Concretely, it can come to the serial damage afterwards only if the always same and/or similar obligation offence happened with the same customer! If mandates are handled independently of each other, a serial loss is therefore ruled out; such mandates do not form a community of fate within the meaning of the serial loss clause.
However, there are further arguments besides the principle that risk limitation clauses in insurance law are generally to be interpreted very narrowly. If there are gaps in the insurance cover, these must be made very clear to the policyholder ? otherwise such clauses could only be interpreted from the perspective of a policyholder who does not have specialist knowledge of insurance law (BGH, IV ZR 318/02). Further ? and there is only one dissertation on insurance law ? the serial damage clause is likely to violate the transparency requirement (§ 307 of the German Civil Code or § 9 of the German General Terms and Conditions Act (AGBG)), because the legal and economic effect of the clause is hardly comprehensible to the average policyholder.
Your insurance broker must carefully check overinsurance and underinsurance. Status: 12.08.2005 Law expert report � 03/2005
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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